Watch what you say about your principal!

Regular readers will recall that we featured
this story back in july 2010. it was submitted
by Thom Vaughan of EAD solicitors. Thom’s
article was about the original (High Court)
decision, however, a Court of Appeal
decision was made in October, so please
read the following update to the case;
Kevin.manship@morgan-cole.com
It may be an obvious point of common sense, but if you
make disparaging remarks about your principal the
likelihood is that they will be entitled to terminate your
agency contract and you will lose your right to
compensation or indemnity under Regulation 17 of the
Commercial Agents (Council Directive) Regulations
1993 (the Regulations).
However, it is clear from the recent Court of Appeal
decision in Anderson & Albrecht v Crocs Europe BV that
the principal will not automatically have a right to
terminate in these circumstances and avoid
compensation/indemnity payments. Each case will be
decided on its own facts and the Court will look at how
serious the breach of contract is before determining
whether the principal is entitled to terminate.
Regulation 3 implies into the contract between a
commercial agent and his principal (the agency
contract) obligations on the commercial agent
to”…look after the interests of his principal and act
dutifully and in good faith”. The commercial agent and
his principal cannot ‘opt out’ of these obligations, which
means they apply to all commercial agency contracts,
whether those contracts are written or verbal and
irrespective of whether the contract itself actually says
something different.
WHAT HAPPENED IN THE CROCS CASE?
The Claimant commercial agents had built a very
successful agency in the UK for Crocs’ products over a
relatively short period of time (about 3 years) and Crocs
became unhappy with the levels of commission it was
paying to them. By its own admission Crocs was looking
to end the agency contract, but it had not taken that
step because it would have faced a sizeable claim for
compensation under Regulation 17. The parties had
tried to negotiate a way out of the situation, but could
not reach agreement and a tense stand off ensued for
several months before Crocs terminated the agency
contract citing breaches by the Claimants of their
obligations under Regulation 3.
The breaches relied upon by Crocs related to the
creation by a member of the Claimants’ customer
services team of a spoof “Star Wars crawl” (the text at
the beginning of each Star Wars film which rolls up the
screen and disappears into space). A member of Crocs’
customer services team in Holland had found a website
which enabled an individual to create their own “crawl”
using whatever text they wished.

He used this to create a “crawl” about a typical working
day for the Crocs’ customer services team and sent a
link to the website page he had created to staff in the
Claimants’ office. In turn, one of them created the
following “crawl” which poked fun at the difficulties
Crocs had had over a number of years in making
deliveries to customers in the UK;

That’s a Croc!! Of Shite!!
SPECTRUMS WAR OF LIGHT VS DARK
SOS to the stoned nether regions of the
Netherlands, evil dark lords create partys to
numb the brains of the workers but couldn’t do
the galactic job of putting shoes in boxes.
Leaving the UK to fend off retailers fighting like
storm troopers with phone & email abuse, they
fought for a year with the promise of
reinforcements. This was an evil plan to draw the
UK into the dark abyss filled with Croshite.. In
the intense battle that followed, we had offered
the crown jewels of Uk retail to the dark lords
who then shat all over the retail landscape,
leaving behind the strewn waste of the spectrum
crew. WE WILL SURVIVE battered, bruised but
laughing.
As well as claiming that the Claimants’ contract was with
Crocs Europe BV’s parent company rather than Crocs
Europe BV and that the Regulations did not apply to
Claimants’ contract, Crocs also argued that the
Claimants had breached their obligations under
Regulation 3 by (i) creating the “crawl” and (ii) circulating
a link to the “crawl” to a group of friends of the
Claimants which included a number of Crocs’
customers. Crocs argued that it was therefore entitled
to terminate the contract (and thereby avoid having to
pay compensation to the Claimants).
HIGH COURT DECISION
The High Court Judge had no hesitation in finding that
the Claimants’ contract was with Crocs Europe BV and
that the Regulations did apply to it. He also found that
the Claimants had breached their obligations under
Regulation 3. Crucially, however, he also decided that
the seriousness of that breach fell “a long way short” of
the level of seriousness required to entitle Crocs to
terminate the agency contract. In reaching that
conclusion, he relied on a number of factual matters
including that:

1。the “crawl” was obviously intended to be humorous
(and sounded worse in a Court than in the world of
the web);

2。the circulation of the “crawl” was very limited and to
persons who would see the joke;

3。it was very unlikely that Crocs’ customers would see
the “crawl” unless they had the specific link (there
had been a dispute between the parties as to
whether the “crawl” was available “to the world at
large” as claimed by Crocs or had very limited
accessibility because it could not be located via
search engines such as Google but could only be
accessed via a specific link to the web page on
which it had been created);

4。 the situation at Crocs which was the subject of the
crawl’s humour was well known to Crocs’
customers.

COURT OF APPEAL DECISION
Undaunted, Crocs appealed the decision that the
breach had not been serious enough to entitle Crocs to
terminate the agency contract. Crocs raised a number
of grounds of appeal, including (i) that any breach of
Regulation 3 should automatically entitle the principal
to terminate the agency contract and (ii) that the High
Court Judge got it wrong and the Claimants’ breach was,
in fact, serious enough to entitle Crocs to terminate the
agency contract. The case came before the Court of
Appeal.
Despite one of the Court of Appeal Judges indicating
that he might have found in favour of Crocs if he had
been the Judge in the High Court, the Court of Appeal
upheld the decision of the High Court Judge.
The Court of Appeal agreed that the Claimants had
breached their obligations under Regulation 3 but the
breach was not serious enough to entitle Crocs to
terminate the agency contract. The Court agreed with
the reasons given by the High Court Judge and
concluded that the crawl was “obviously jokey” and that
there was no evidence of harm suffered by Crocs.
WHAT DO AGENTS NEED TO KNOW FROM THIS?
Clearly, to be on the safe side and to avoid the risk of
termination of the agency contract and the loss of your
right to compensation or indemnity, a commercial
agent should avoid making any disparaging or
derogatory remarks about his principal.
If such remarks cannot be avoided in the heat of the
moment or as tempers flare, all may not be lost. It is
clear from other cases dealing with similar issues that, if
a genuine and full apology is made by the commercial
agent before the principal tries to terminate the agency
contract, that might diffuse the situation and prevent
the principal from being able to terminate. However,
depending on the particular circumstances even a
genuine apology might not be sufficient.
Each case will be decided on its particular facts, but a
Court will very likely find disparaging or derogatory
remarks to be a breach of the commercial agent’s
obligations to his principal under Regulation 3. The
Court will then have to decide whether that breach is
serious enough to entitle the principal to terminate the
agency contract without having to pay compensation
or indemnity. Much will depend on the views formed
by the Judge and it can be seen from the comments
made in the Court of Appeal that this could be
something of a lottery as different Judges may form
different views based on the same evidence.

Disclaimer: This column does not contain legal advice and is for general
guidance only. Agentbase, Morgan Cole LLP, and the writer accept no liability
in connection with the general guidance given in this column.